Volatility has ripped through the foreign exchange market as the U.S. dollar gave back its earlier gains. Safe haven flows drove the dollar higher at the beginning of the U.S. trading session, but the currency lost value when equities took off. The big story in the foreign exchange today was the Swiss National Bank’s controversial and nuclear decision to intervene in the currency market, raising fears of a global FX war. By coming into the foreign exchange market to sell Swiss Francs, the central bank has driven the Euro and U.S. dollar sharply higher. The gains in these currencies were exacerbated by the rally in U.S. equities and a stronger retail sales report. The rally in the foreign exchange market today indicates that risk appetite has improved.

The U.S. dollar gained strength against the Japanese Yen following the better than expected retail sales report. This could be a good day for risk if the momentum continues.

Despite massive job losses, Americans continued to spend. Retail sales rose 1.0 percent in the month of January after falling for 6 months in a row. Consumers spent money on electronics, food and beverages, gas, and clothing, taking advantage of beginning of the year discounts and Circuit City's bankruptcy.

For the 6th month in a row, US consumers have cut back spending. The December consumer spending data tells us that retailers had a very tough time this holiday shopping season. Consumers reduced their spending by 2.7 percent but if you take out year end deals in the auto sector, retail sales actually fell 3.1 percent, the largest decline in at least 16 years.

The US dollar strengthened across the board today following better than expected economic data and more clarity from the Federal Reserve on their plans to stimulate the economy going forward. However the strength of the greenback could be fleeting particularly against the Japanese Yen as the upside surprises in US data masks underlying weakness. The December retail sales report is due for release tomorrow. Even though there is a chance that we may see an upside surprise, consumer spending is still expected to be negative for the sixth consecutive month.